Eastman Kodak

Confidence Building at Kodak

Eastman Kodak (EK) will be hosting its annual meeting with the investment community on Thursday in New York. It would be a good idea to listen to or attend this meeting. It appears the turnaround is very much underway.

• Net cash generation of $592 million versus an estimate of $400 million to $600 million, hitting the higher end of the estimate
• Digital earnings grew five-fold, albeit only hitting the lower end of guidance
• Intellectual property development doing well, as it makes progress with its CMOS business and generates profits from its other IP businesses

The negative side of Eastman Kodak's earnings release was slower digital growth than expected as management decided to focus on profitability versus chasing the lower end of the digital camera market.

Kodak ended the year with $1.5 billion of cash on the balance sheet. And will receive $2.35 billion in cash from the health care business disposition.

Antonio Perez, although focused on his task, has demonstrated some nervousness with the investment community as his turnaround strategy hit bumps in the road. However, it appears the biggest bumps have been hit and smoother roads are ahead. Investors need to revisit Eastman Kodak. It is no longer an asset intensive, slow moving company.

Feburary 6, 2007

Solar Power

Making Money In Solar Power

SunPower (SPWR), the Cypress Semiconductor founded company, has performed well since going public. The stock has moved up to $43, increasing from the mid-20s when it initially started trading.

SunPower makes solar electric power products based on semiconductor technology. Due to the strong growth of these semiconductors, management has cited that getting access to the much needed materials might limit SunPower's growth.

In this weekend's Barron's interview, Michael Cahill, portfolio manager of Chilton Investment, has found a way for investors to possibly profit from any supply shortages that SunPower might face.

Cahill recommends the purchase of MEMC Electronic Materials (WFR). For SunPower to make its chips, it needs a lot of polysilicon, the material used to manufacture semiconductor wafers. However, as this new solar application for semiconductors takes off, polysilicon will most likely be in short supply.

MEMC Electronic earned $2.07 for 2006 and Cahill expects earnings to hit $3.00 in 2007 and $4 per share by 2008. MEMC Electronic appears to be a way to profit from the take off of the solar semiconductor business.


February 6, 2007

High Technology

Interesting Technology Data Points

Barron's interviewed Michael Cahill, portfolio manager of Chilton Investment, on the outlook for tech stocks. Cahill made some interesting points:

• From 2004 to 2006, the Nasdaq has been the single worst performing major index.
• The Nasdaq is up only 23% versus 35% for the S&P 500, 47% for the Russell 2000, 47% for Japan, 60%-range for the European Indexes and over 100% for emerging markets.
• Cahill also points out that tech stocks have had serious multiple compression in addition to a huge accumulation of cash on their balance sheets. When adjusting for cash, tech valuations become even more attractive.
• In 1999, there were 282 tech IPOs; in 2000 there were 205; in 2005 there were 23 and in 2006 there were 26.

Cahill concludes that with the massive share buybacks and the lack of new supply coming to market via IPOs, the supply and demand balance for tech stocks is becoming more and more favorable. Further, Cahill says most of the liquidation of tech shares by mutual funds in the post-tech bubble environment is completed.

The area he particularly likes is broadband wireless. Companies he likes are Anadigics (ANAD) and EchoStar Communications (DISH).

February 5, 2007

Internet Stocks

The Big Internet Companies Are Here To Stay

If one theme came out of this earnings season it is the big Internet players are for real and they are here to stay.

eBay (EBAY), Amazon (AMZN) and Google (GOOG) all reported results that show that their business models are sustainable. Even Yahoo (YHOO), which continues to struggle, has value as a takeover candidate.

eBay for 2006 reported $6 billion in revenue, up 31%. It bought back $1.0 billion in stock and announced it would increase the buy back to $2.0 billion. This is the first big stock repurchase program in the company's history.

Amazon forecasts revenue to exceed $13 billion up from $10.7 billion in 2006, a 21% increase. Amazon looks to earn $355 to $505 million in operating profit next year.

Google's revenue grew 67% in the fourth quarter and earnings for the quarter reached $1.0 billion. That means, unless something goes terribly wrong, Google will earn over $4.0 billion next year. I think Google will be around for a while.

For most of the 1980s and 1990s investors did not believe Microsoft, Oracle, Intel and Dell would grow to the size they have become. When companies become dominant players in new industries, it is often best to go with the trend and ride these stocks for the long haul.

Ten years into the Internet, the results reported by eBay, Amazon, Google and even Yahoo, show that the industry and these companies are for real.


February 2, 2007

Amazon

A Real Business Model Might Be Evolving

For those who have not looked at Amazon (AMZN) for a while, here are some interesting stats.

Revenue:

• 2007 - $13.0B to $13.7B (estimated)
• 2006 - $10.7B
• 2005 - $8.5B
• 2004 - $6.9B
• 2003 - $5.3B
• 2002 - $3.9B

Amazon is turning into a large company from a revenue perspective and its growth rate is very impressive. In addition, the company is profitable and generates a good amount of cash.

While revenue growth is quite impressive, its ability to forecast operating profits is interesting. Amazon is guiding for first quarter operating profit of $88 million to $122 million, for either a 22% decline or 16% growth versus last year.

For the year, Amazon is forecasting operating profit to decline 9% or to increase 30%. Management expects $355 million to $505 million in operating profit for 2007.

Amazon has a market cap of $16 billion. So it is selling for 1x sales, which is OK for a retailer. However, from the operating guidance, Amazon's business model is still a work in progress. With that said, if the company does get its model figured out, which it appears it will during the next couple of years, this stock could become a big winner.

Start following this stock again, the numbers are too good to ignore.

February 2, 2007

Dell Inc

Michael Dell Back In Charge; Do Not Chase Stock Yet

Michael Dell finally decided to step back into an operating role at Dell (DELL). This follows a tough period for Kevin Rollins and Jim Schneider, both of whom had a tough time anticipating where technology was going.

The old Wayne Gretzky line "you have to skate where the puck is going to be" was seriously lacking with Rollins and Schneider. Both were good executives and diligent but were not tech guys.

Do not chase today's rally in Dell's stock. Dell needs to hire a whole new management team. Wait to see if he can convince executives to join him or if he can find people from within Dell to run the company. It will take a couple of quarters for Michael Dell to have an impact.

February 1, 2007

Google

Spectacular Results Any Way You Look At It

• 47% market share of search business, Google continues to grow share


• 67% growth in revenue


• Earned over $1 billion in net income for the quarter—A Big Number

Google’s strategy of letting users develop content continues to work. Yahoo and old-line media continue to believe only large institutions with deep pockets can generate content for the masses.

During the conference call, Google decided to spend time discussing its ad platform in which it paid over $3.0 billion to its partners during the past year. It was clearly an effort to distinguish between Google and Yahoo!’s Project Panama—which is just being introduced.

Any way you slice it, Google is becoming more and more powerful of a company. It’s ability to share revenue with partners based on algorithms built by the company is very powerful. Yahoo is going to have a tough time catching up.

February 1, 2007

Microsoft

New Product Launch Will Re-accelerate Growth

Microsoft (MSFT) reported revenue growth of 6% , but if you include the big jump in deferred revenue, revenue increased 20%, according to the company. Bookings growth was also up over 20%.

Microsoft will be launching the consumer version of Vista in February. As a reminder, Microsoft has also launched a new Office and Exchange Server. This broad product launch is huge for Microsoft.

Chris Liddell, Microsoft's CFO, said he expects an excellent year. He also cited that hardware sales for the December quarter was strong, another positive data point for the sofware giant.

Going forward, Microsoft expects double digit revenue growth and for earnings per share to exceed revenue growth.

Microsoft's stock has had a good run anticipating the launch of Vista. However, it appears results are already exceeding most expectations. It appears Microsoft has its growth back and the stock has more to run. Investors have to ride the Vista launch.

January 26, 2007

SAP

SAP's Weak Results Point To Oracle's Success

SAP AG (SAP), which warned earlier in the month, made comments in yesterday's Q4 earnings conference call point to Larry Ellison's prognostication of SAP's demise being more and more correct.

Back in September, after reporting a blow-out quarter, Oracle's (ORCL) Ellison said SAP is a number of years behind. Ellison went as far to say that if Oracle doesn't screw up, SAP is in big trouble.Since Ellison made those comments, more and more evidence is coming out supporting his view.

Since late 2006, SAP has reported poor results and IBM has reported weak results in businesses that work closely with SAP.

SAP said it is going to spend an extra 300 to 400 million euros over the next eight quarters for new software development. This further supports Ellison's claim of SAP beginning behind the curve.

Oracle's stock had a good year in 2006 with industry spending in a lull. But now it appears the lull is over and Oracle could be off to the races again.

January 25, 2007

eBay Inc.

The Power Of 3 Is Powerful

The "Power of 3" is what Meg Whitman calls eBay's (EBAY) 3 primary businesses -- marketplaces, payments and communications. Any way you slice it, the Power of 3 is working.

• For 2006, $6 billion in revenue, up 31%
• Purchased $1.0 billion in stock and is upping it to $2.0 billion -- eBay has never repurchased its stock prior to July 2006
• eBay has 220 million users and Skype is now up to 171 million users, both growing nicely
• Other eBay names that it owns or has interest in or relationships with are doing well like Shopping.com, Craigslist and VeriSign

Of the many positive points for eBay, the most important to drive this stock higher is that growth is now re-accelerating. Historically, large growth companies perform best when the growth rate picks up. The company is guiding to 18% to 21% growth for 1Q07, which appears too conservative.

Sometimes it is best not to think -- just buy and put a stock away. That is what investors should do with eBay.

January 25, 2007

Sun Microsystems

Sun's Results solid, but KKR Convert Raises Questions

Sun (SUNW) reported a solid 7% increase in revenue for its second quarter, citing good demand for its SPARC chip multithreading (CMT) servers and x64-based servers as well as the increased acceptance of the Solaris 10 Operating System.

More importantly in the tech world, the company showed strong gross margins, coming in at 45%, up from 43% last year.

Sun generated cash from operations of $153 million and had cash and marketable securities at the end of the quarter of $4.8 billion, a lot of cash.

However, despite good cash generation, improved margins and a strong balance sheet, Sun decided to go forward with a $750 million convert with KKR. During the earnings conference call, analysts could not figure out why Sun did the deal.

Jonathan Schwartz, Sun's CEO, said the KKR transaction will allow it to better explore strategic opportunities. He added there could be some cross selling opportunities between KKR's portfolio companies and Sun. Analyst did not appear to believe him.

The reality is the only reason for Sun to need this extra cash is to make a sizable acquisition. Despite an improved operating performance, the growth metrics for Sun, especially within the US, are still weak.

Look for Sun to do another big transaction this year.

January 24, 2007

Yahoo!

Worth Chipping Away At: Good Risk-Reward Bet

Buying Yahoo’s (YHOO) stock is a bet on Project Panama, its new advertising platform. If it succeeds, the stock goes up. If it fails, Terry Semel gets fired and the stock goes up. Therefore, investors are almost in a win-win situation.

In addition, the downside risk is protected by the powerful cash flow machine that this company is. For 2006, Yahoo generated revenue of $6.4 billion, EBITDA of $1.9 billion and free cash flow of $1.27 billion. Any way you look at it, Yahoo's cash generating ability is not going away over night.

For the stock to take off, Project Panama needs to be able to better dynamically link search with advertisers, thereby driving growth again. However, investors will not see this growth until 2Q07. Yahoo stated that 1Q07 will be a transition period.

Waiting for Project Panama to show positive results could prove to be a big risk. If the new advertising platform takes hold the stock might have already discounted the success, making it too late to profit. With little downside risk, Yahoo is worth purchasing and putting away. If the new advertising platform begins to work, this stock will quickly come back into favor.

January 24, 2007

Texas Instruments

Weak Results at TI; Waiting For New Product Ramp

The handset market is maturing and Texas Instruments (TXN) results clearly showed this:

• 5% decline in semiconductor sales sequentially
• Wireless was the primary reason for the weakness, declining 10% sequentially. Handset growth is shifting to lower end products
• Orders down 10% -- weak
• Book to bill is at .89 -- weak
• Expect revenue to decline for 1Q07 of 5% to 13% -- weak
• Growth at TI is coming from a low-cost integrated chip for low-end phones sold in emerging markets. While this business is growing, it does not offset the weakness of the higher end 3-G business.

For TI to grow again, it needs a higher end product to take hold. Specifically, a mass market RIMM, Treo, or Q-type device. This most likely will not happen until the 2007 holiday season.

No need to rush into TI's stock. Wait for seasonally weak summer season to look at this stock again.

January 23, 2007

Lyondell Chemical

Lyondell's Got it All: Earnings, Cash Flow and a Huge Refinery

Lyondell Chemical (LYO) was mentioned twice as a stock to buy in this past weekend's Barron's roundtable, recommended by both Archie MacAllaster and John Neff.

At $25, the stock is selling for 6.25x earnings versus the S&P 500 selling for 15x to 16x earnings. What is particularly attractive about Lyondell is that it bought out its Venezuelan partner's 41% stake in the Citgo refinery and now fully owns this sizable refinery. This asset should generate a lot of cash flow for Lyondell's shareholders for years to come.

Lyondell put a good chunk of debt on its balance sheet to purchase the Citgo refinery stake, but has already reduced debt by $2 to $3 billion, according to MacAllaster, who put a $40 price target on the stock.

January 23, 2007

The U.S. Dollar

Dollar Weakness Is Not Necessarily Bad

Bill Gross, of Pimco fame, joined the chorus of Warren Buffett and others saying the U.S. dollar is "doomed." Gross made these comments in this weekend's Barron's Roundtable.

Gross repeats the same comments as many others: the twin deficits (federal and trade) will force the country to inflate its way out of the deficits. This is pure hogwash.

The U.S. dollar will go down relative to some currencies due to other countries becoming wealthier. This is a good, not a bad thing. Emerging economies will provide goods and services at competitive prices and the market will reward those countries with a stronger currency.

This is exactly what happened to Japan in the post-World War II era. Japan started off making low-end trinkets and then moved up the value chain, becoming a powerful global economic participant. Its currency appreciated relative to the dollar along the way.

The same will happen to other currencies. China was the prime example in 2006 as it began to manage the appreciation of the yuan.

When you hear all this negative babble that the U.S. currency is doomed, take it with a grain of salt. The dollar weakening because other economies are doing smart things is a good, not a bad thing. History has shown that as long as the U.S. keeps inflation between 2% to 2.5%, then a weaker dollar is manageable.

January 22, 2007

Pioneer Natural Resources

Start Looking At Select Commodity Stocks

TheFly blogged to avoid commodity stocks back in the spring. Our timing was quite good. However, a lot of these stocks have corrected significantly and they are beginning to represent good value.

Pioneer Natural Resource (PXD) was mentioned by Archie MacAllaster in this weekend's Barron's Roundtable. Pioneer is the third largest independent oil and gas producer in the U.S. and its stock has come down from a high of $54 to $38 -- a big correction.

According to MacAllaster, Pioneer had forward sold a lot of its output considerably below today's prices. Therefore, as these contracts come off, Pioneer can sell their gas at much high prices and earn greater profits, despite the recent natural gas price pullback. Pioneer's reserves are all domestic, so they will benefit from better prices due to the inevitable decline in U.S. reserves.

Also, Pioneer has shrunk it shares outstanding from 145 million to 125 million and is supposedly on its way to 100 million shares outstanding.

January 22, 2007

JDS Uniphase

Guidance Raised: A Sign Optical Is Coming Back

JDS Uniphase (JDSU) raised its revenue guidance last night. The company had seen Q2 revenue of $332M-$352M and now sees revenue at $360M-$365M; consensus is for $343.29M.

The company cited strong performance by its communications test and measurement segment, which has been an area of focus for JDSU CEO, Kevin Kennedy, a former top executive at Cisco (CSCO).

However, JDSU's test and measurement business is focused more on IP and optical traffic than the test and measure tools used in the semiconductor space. Two different businesses.

This is another data point that the optical business continues to improve. Ciena (CIEN) should also benefit from this news.

Written January 19, 2007

Apple Inc

Numbers Beat Expectation, But Are They Strong Enough To Drive Stock Higher?

Apple (AAPL) reported very solid numbers last night. Revenue hit $7.1 billion, up from $5.7 billion last year, or a 24% increase. Apple beat the consensus estimate of $6.4 billion. It appears Apple, once again, set the bar pretty low.

iPod sales jumped to 21 million units, up from 14 million units last year, for a 50% increase.

It appears a lot of the Apple-hype ran out last week at MacWorld and the next catalyst appears to be the launch of iPhone.

Apple's stock, historically, has waited to appreciate until data is available on the success of a new product. Obviously, iPhone is the next big push. Wait for data points on the iPhone launch before getting into this stock. iPod is entering a seasonally weaker period and Apple needs the next great product to drive this stock higher.

January 18, 2007

Consumer Vs. Business

Consumer Vs. Business

Consumer Has Been Driving Technology This Decade: Is It Time For A Change?

Intel, last night in its conference call, said that the consumer will be driving the first ramp in demand for Microsoft's Vista operating system. Tonight, Apple reports results whose huge success has obviously been driven by iPod, a consumer product.

However, beneath the headlines, Intel mentioned that its server business is doing quite well. Also, other large-volume high-end companies such as Sun Micro, Level 3, IBM and possibly EMC are seeing improvement in their operating performances.

While investor attention is still focused on Apple, the iPod and the consumer, the revenue and operating performance of technology companies focused on the business customer appear to be improving nicely for the first time in a long time.

January 17, 2007

Cotton

Compelling Argument To Go Long Cotton

Art Samberg, of Pequot Capital fame, provided a compelling argument to go long cotton in this weekend's Barron's investor round table.

For you commodity traders out there, Samberg said go long the December '07 cotton contract. His reasoning is while cotton consumption in the US has been in decline, China consumption which has been growing nicely, is picking up more steam.

Cotton consumption in the US has fallen from 12 million to 5 million bales a year due to the growth of polyester and other materials. Conversely, Textile spending is on a big upswing in China - up 27% in '06, after jumping 36% in '05. Chinese consumption which had been growing 4% to 6% per year is now growing 15% per year.

According to Samberg, China's cotton consumption has increased from 25% to 39%-40% of world cotton consumption.

Because of strong prices of corn and soybeans--corn being used for ethanol production, US farmers are going to remove acreage from cotton to earn better profits in higher priced corn and soybeans. Supposedly, there have only been four times since 1913 when cotton was this cheap relative to grains like corn and wheat. The last time being 1974. From 1974 to 1976, cotton tripled in price.

Written January 16, 2007